Gazprom’s announcement to expand the Yamal-Europe gas pipeline through Poland came as a surprise to Polish Prime Minister Donald Tusk, who said construction will be carried out by the Polish state, and not Gazprom.

On Friday, Gazprom announced it had signed a memorandum of
understanding with EuroPol Gaz to make the world’s largest pipeline
even bigger, in a project which will extend the pipeline through
Belarus and Poland to Germany.

Polish officials were caught unaware by the agreement, and
voiced stringent opposition:

"No one, except for the Polish company [PGNiG] and the Polish
government is entitled to make decisions about transit via Polish
territory," Treasury Minister Mikolaj Budzanowski said, in
reference to the EuroPol-Gazprom accord.

The second vein of the Yamal-Europe pipeline is expended to have
a capacity of 15 billion cubic meters. The Yamal-Europe 1 pipeline
currently has a capacity of 33 billion cubic meters and connects
Russia and Germany.

The state-owned PGNiG has a pipeline joint venture with Europol
Gaz which, along with Gazprom, operates the Yamal-Germany
pipeline.

PGNiG, holds a 48% stake in Europol. Gazprom also holds 48%, and
the remaining 4% is held by Gas-Trading SA.

"This is just a document regarding a feasibility study and
does not mean that the gas link will be built," Grazyna
Piotrowska-Oliwa, deputy chairman of the Europol Gaz supervisory
board and chief executive at Poland's gas monopoly PGNiG, told
Reuters.

The first Ukraine bypass was Nord Stream, which connects Russia
and Germany through the Baltic Sea and is estimated to have cost
$7.4 billion. The first section of the Nord Stream was opened
November 2011, with a capacity of 26 billion cubic meters, and
Gazprom has plans with Dutch partner Gasunie to build more.
South Stream which is another undersea pipeline is in the
works and is expected to open in 2017.

The second is the Yamal-Europe 2 proposal, which Poland
initially favored Gazprom to carry-out, but now wants more control
over.

Poland has many reasons to be in favor of the land pipeline, as
it involves Polish economy and increases supply to a country with
high winter energy demand.

At the end of March, Poland requested Gazprom increase
deliveries, the Polish paper Rzeczpospolia reported, due to
unseasonably cold temperature. In 2012, Poland bough 9.94 billion
cubic meters of gas from the Russian company, and 10.25 bcm in
2011.

Deputy Premier and Economic Minister Janusz Piechocinski
met with Gazprom CEO Alexey Miller in St. Petersburg on April 5th,
and discussions seemed to reveal a different attitude than that of
the Treasurer and Prime Minister,

“If the Russian side puts forward any proposal to speed up
this initiative… then we will respond to it,” he told reporters
after meeting with Miller.

President Putin has given the executive go ahead for Gazprom
execs to begin work on the project, which set off a wave of
patriotism amongst Polish officials.

“The decision on building a transit gas pipeline will be a
sovereign decision made by the Polish government and the Polish
pipeline operator,” Poland’s Treasury Minister Mikolaj
Budzanowski said. “The legacy of the Yamal pipeline provides
evidence that mixed ownership structures for managing transit
pipelines are not effective.”

The ‘Druzba’, or ‘Friendship’ pipeline, has been in operation
since 1962 and is the largest gas pipeline in the world, but
operations have recently been plagued by the public
Ukrainian-Russian dispute, where price disputes have led to regular
disruptions in supply.

“Based on this experience, I believe the project for the
construction of a new pipeline can only be implemented by an
investors owned by the Polish state.”

Poland’s insistence on a state-owned pipeline is an indicator of
their desire of energy independence from Russia, from where they
currently import 67% of their natural gas.

Gas ‘not a tool’ for Poland

Since very public disputes with Ukraine, Gazprom has been
searching for alternative ways to provide Western Europe with gas,
looking to eliminate Ukraine from the transit equation.

Piechocinski told Polish Radio, as a geopolitically important
neighbor both to Ukraine and Russia, that his state should be ‘very
careful’ not to get in the middle of their gas dispute.

“Russian expectations or ideas that running a pipeline
through Poland that would circumvent Ukraine is just something to
be hammered out in negotiations,” Mr. Tusk said.

The new pipeline would be a political and economic victory for
Russia and would end concern about trying to move oil through
Ukraine.

“Poland won’t participate in these political
contexts,” Mr. Tusk said. “For us, gas isn’t a
tool to conduct politics and we very much want, in agreement within
European Union laws, to keep gas issues free of politics.”

Keeping gas free of politics is an oxymoronic assumption in the
Poland-Russia case, as Gazprom and PGNiG are both state owned gas
monopolies.